The largest U.S. bank had $1.1 billion of legal expenses in the fourth quarter, about $850 million of which was linked to a recent settlement for failing to report its suspicions of fraud at its client Bernard Madoff’s fund.

The bank agreed to some $20 billion of legal settlements in 2013 – almost equal to a typical year’s profit – which covered everything from mortgages it packaged into bonds before the financial crisis, to bad derivatives trades it made in 2012.

Dimon said some investigations into JPMorgan are just beginning, implying that legal issues are likely to dog the bank for some time, even if on a smaller scale.

Legal headaches aside, the bank faces headwinds in businesses ranging from debt underwriting to advising companies on mergers. Rising bond yields are cutting into demand for issuing debt, and new rules designed to make the financial system safer are also cutting into trading volumes.

To settle a barrage of government legal actions over the last year, JPMorgan Chase has agreed to penalties that now total $20 billion, a sum that could cover the annual education budget of New York City or finance the Yankees’ payroll for 100 years.

It is also a figure that most of the nation’s banks could not withstand if they had to pay it. But since the financial crisis, JPMorgan has become so large and profitable that it has been able to weather the government’s legal blitz, which has touched many parts of the bank’s sprawling operations.

The latest hit to JPMorgan came on Tuesday, when federal prosecutors imposed a $1.7 billion penalty on the bank for failing to report Bernard L. Madoff’s suspicious activities to the authorities.

Yet JPMorgan’s shares are up 28 percent over the last 12 months. Wall Street analysts estimate that it will earn as much as $23 billion in profit this year, more than any other lender. And JPMorgan’s investment bankers, who on average earned $217,000 in 2012, can look forward to another lush payday as bonus season approaches.

“The fines have been manageable in the context of the bank’s earnings capacity,” Jason Goldberg, a bank analyst at Barclays, said. “It makes $25 billion in revenue per quarter and has record capital.”

“JPMorgan failed — and failed miserably,” Preet Bharara, the United States attorney in Manhattan, said on Tuesday in announcing the action.

As much as such words might sting at first, the bank’s shareholders and clients show every sign of remaining loyal. JPMorgan’s financial success highlights a deep quandary that regulators have to grapple with as they press the largest banks to clean up their acts. The government’s penalties may seem large on paper — JPMorgan’s mortgage settlement with the Justice Department last year cost it a record $13 billion — but the largest banks seem capable of earning their way out of serious legal trouble.

“JPMorgan’s shareholders may believe these billions of dollars don’t count because they see them as extraordinary expenses,” said Erik Gordon, a professor at the University of Michigan Law School. “But they keep popping up one after another — and the bank could have done something about them.”

One reason that JPMorgan can absorb the $20 billion is that it has steadily set aside reserves over the last few years to finance future legal payouts. Mr. Goldberg, the bank analyst, estimates that, as of last year’s third quarter, JPMorgan had injected $28 billion into its legal reserves since the end of 2009. The legal payouts that have been subtracted from the reserves, including those booked since the third quarter, might have taken the reserve down to about $10 billion. Most analysts expect JPMorgan will be able to cover any remaining settlements, though the bank said on Tuesday that it might have to set aside an extra $400 million for the Madoff settlement.

In theory, regulators have other ways of improving ethics at banks. They can try to hold more individuals personally accountable. Some senior executives have left JPMorgan as a result of recent scandals at the bank, including the so-called London whale incident, in which the bank’s traders lost more than $6 billion on botched derivatives trades. In recent months, the bank has also added two members to its board to improve oversight.

But facts contained in the government’s Madoff action suggest that efforts to hold executives responsible may go only so far.

The action describes how the chief risk officer of JPMorgan’s investment bank allowed the bank to increase its financial exposure to a Madoff entity in 2007 to $250 million. The risk officer had spoken with Mr. Madoff but approved the increase even though Mr. Madoff appeared to make it clear that he would not answer more probing questions about his firm. The government’s action says that the risk officer understood that Mr. Madoff “would not authorize any further direct due diligence of Madoff Securities.” The risk officer, John Hogan, still works at JPMorgan as chairman of risk.

“Our senior people were trying to do the right thing and acted in good faith at all times,” Brian J. Marchiony, a JPMorgan spokesman, said in a statement. The bank also said, “We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.”

Still, some banking experts say they think that companies like JPMorgan are so large and complex that it might be almost impossible to keep all employees in line.

“With respect to the big banks, it is not so much a culture problem but a complexity problem,” said Kurt N. Schacht, a managing director at the CFA Institute, an organization that promotes ethics and standards at financial firms. “We think these firms are so large that they are always going to be plagued by rogue operators.”

As a result, breaking up the banks to make them smaller might improve their cultures, some bank specialists contend.

“I think JPMorgan is too big to manage and it should be broken up,” said Paul Miller, a bank analyst at FBR Capital Markets. The London whale incident, he said, showed that some employees at large banks may still try to maximize their compensation at the expense of the firm. “There is too much of an incentive for an individual to cut corners.”

Washington (CNN) — Five years after the financial crisis, the debate over whether some of the biggest banks in America are “too big to jail” is causing tensions among prosecutors and regulators.

As federal prosecutors in Manhattan finalized their investigation of JPMorgan Chase & Co. for failing to blow the whistle on Ponzi-schemer Bernard Madoff, the question arose: What happens if federal prosecutors file criminal charges against the bank?

The answer was stark at a meeting in recent weeks in Washington between prosecutors and the bank’s chief regulator, the Office of the Comptroller of the Currency.

Prosecutors asked for assurance that charging the bank wouldn’t lead to regulators starting proceedings to revoke the bank’s charter, according to people familiar with the discussions. Prosecutors thought forcing the bank to accept a guilty plea could serve as a deterrent. But they also feared that if regulators moved to pull the bank’s license, it could lead to destruction of the nation’s largest bank and potentially the loss of hundreds of thousands of jobs. OCC officials said they could provide no such assurance, the people familiar with the discussions said.

On Tuesday, U.S. Attorney Preet Bharara announced a deferred prosecution agreement with JPMorgan, under which the bank would pay $1.7 billion in restitution to victims of the Madoff fraud. The bank agreed to improve its anti-money laundering practices and other changes over the next two years to avoid facing criminal charges.

CNNMoney: JPMorgan’s expensive Madoff reckoning

OCC officials also announced a settlement with the bank, levying a $350 million penalty — money which goes to the U.S. Treasury. The regulator also ordered the bank to improve its internal programs that are supposed to flag suspicious transactions.

Bryan Hubbard, an OCC spokesman, said, “I can’t comment on discussions between agency officials.” Spokesman for the U.S. Attorney for New York’s Southern District declined to comment.

Tensions between regulators and prosecutors

Prosecutors complain that when they push for tougher penalties, regulators warn of consequences that could mean damage to the U.S. economy. Regulators say they are required by U.S. law to pull banking licenses if banks are convicted of criminal charges.

Hubbard said Tuesday that federal law requires the regulator to initiate proceedings that could lead to revoking banking charter if a bank is convicted of banking law violations. “DOJ independently decides whether to pursue criminal charges and prosecution against a bank for criminal violations of [money-laundering] statutes. The OCC does not make recommendations regarding criminal prosecution.”

At the same time, there’s public clamor for consequences against big banks blamed for reckless practices that led to the global financial crisis from which much of the world is still recovering.

The result is that highly profitable banks pay large settlements and move on. JPMorgan alone is the subject of up to a dozen investigations by federal prosecutors.

An official close to the discussions said the result is a “conundrum where bad guys get away” with crimes.

Attorney General Eric Holder, in a moment of candor at a 2013 congressional hearing, said, “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”

After much criticism, he returned months later to another hearing and said he wasn’t implying that some banks are too big to prosecute: “Let me make it very clear that there is no bank, there’s no institution, there’s no individual, who cannot be investigated and prosecuted by the United States Department of Justice.”

Criticism for settling cases

Holder’s department came under criticism in 2012 when it settled for $1.9 billion in an investigation of British banking giant HSBC, which for years allowed drug cartels and countries subject to sanctions to launder money.

The tension between regulators and prosecutors showed at a news conference in Brooklyn in which then-Assistant Attorney General Lanny Breuer spoke of fears of collateral damage to the U.S. economy as the reason for not charging HSBC. Thomas Curry, head of the OCC, told reporters his agency couldn’t be tougher on HSBC because prosecutors weren’t going after the bank.

At Tuesday’s news conference on the JP Morgan settlement, Bharara again took tough questions from reporters on why there wasn’t a tougher stance against the bank and its bankers.

“You have to consider consequences such as employees being laid off, the bank failing. … You have to consider consequences such as innocent shareholders losing substantial value. You have to consider the possibility that regulators will take action against the charter of the financial institution,” Bharara said.

Updated, 9:37 p.m. | Two men who occupy coveted roles in Manhattan’s power elite, one the city’s top federal prosecutor and the other its top banker, sat down in early November to discuss a case that was weighing on them both.

Preet Bharara, the United States attorney in Manhattan, and Jamie Dimon, the chief executive of JPMorgan Chase, gathered in Lower Manhattan as Mr. Bharara’s prosecutors were considering criminal charges against Mr. Dimon’s bank for turning a blind eye to the Ponzi scheme run by Bernard L. Madoff. Mr. Dimon and his lawyers outlined the bank’s defense in the hopes of securing a lesser civil case, according to people briefed on the meeting.

But at the cordial meeting in Mr. Bharara’s windowless conference room lined with law books, the prosecutors would not budge. Mr. Bharara — flanked by his own lieutenants, including Richard B. Zabel and Lorin L. Reisner — made it clear that he thought the wrongdoing was significant enough to warrant a criminal case.

On Tuesday, Mr. Bharara announced the culmination of that case, imposing a $1.7 billion penalty stemming from two felony violations of the Bank Secrecy Act, a federal law that requires banks to alert authorities to suspicious activity. The prosecutors, calling the amount a record for violating that 1970 federal law, will direct the money to Mr. Madoff’s victims.

The outcome of the case and the tenor of the settlement talks underscore the significant leverage prosecutors wield when negotiating with Wall Street’s biggest firms. Even though JPMorgan had defeated a similar private lawsuit just months earlier, bank executives were unwilling to gamble against the government.

Within weeks of meeting Mr. Bharara and recognizing their limited bargaining power, JPMorgan’s lawyers accepted the $1.7 billion penalty, the people briefed on the meeting said, which was within the range that prosecutors initially proposed. The bank also agreed to pay $350 million to the Office of the Comptroller of the Currency, accepting the agency’s only offer, one of the people said.

It could have been worse for the bank. At one point, prosecutors were weighing whether to demand that the bank plead guilty to a criminal charge, a move that senior executives feared could have devastating ripple effects. Rather than extracting a guilty plea, prosecutors struck a so-called deferred-prosecution agreement, suspending an indictment for two years as long as JPMorgan overhauls its controls against money-laundering.

Still, the size of the fine and the rarity of a deferred-prosecution agreement — such deals are scarcely used against giant American banks and are typically employed only when misconduct is extreme — reflect the magnitude of the accusations.

Having served as Mr. Madoff’s primary bank for more than two decades, JPMorgan had a unique window into his scheme. In a document outlining the bank’s wrongdoing, prosecutors argued that “the Madoff Ponzi scheme was conducted almost exclusively” through various accounts held at JPMorgan.

At a news conference on Tuesday, Mr. Bharara drew a direct line between Mr. Madoff’s fraud and JPMorgan’s failings, citing the bank for “repeatedly” ignoring warning signs.

“In part because of that failure, for decades Bernie Madoff was able to launder billions of dollars in Ponzi proceeds,” Mr. Bharara said.

George Venizelos, a senior F.B.I. official, added that “JPMorgan failed to carry out its legal obligations while Bernard Madoff built his massive house of cards.”

In a statement on Tuesday, a JPMorgan spokesman noted that the bank had poured significant resources into bolstering its controls, but acknowledged that it “could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.”

The spokesman, Joseph Evangelisti, also defended the bank’s employees, saying, “We do not believe that any JPMorgan Chase employee knowingly assisted Madoff’s Ponzi scheme.” He added that “Madoff’s scheme was an unprecedented and widespread fraud that deceived thousands, including us, and caused many people to suffer substantial losses.”

The charges against JPMorgan, the result of an F.B.I. investigation that spanned several years, are emblematic of a broader problem among giant global banks: ignoring the warning signs of fraud. The case comes a year after HSBC, the large British bank, paid a $1.9 billion fine for enabling Mexican drug cartels to launder cash through its branches.

The case punctuated a sweeping investigation into the movement of tainted money through the American financial system, a crackdown that ensnared other large British banks like Standard Chartered and Barclays. Each of the banks received a deferred-prosecution agreement.

For JPMorgan, the Madoff case is the bank’s latest steep payout to the government. In November, JPMorgan paid a record $13 billion to the Justice Department and other authorities over its sale of questionable mortgage securities in the lead-up to the financial crisis. All told, after paying these settlements, JPMorgan will have paid out some $20 billion to resolve government investigations over the last 12 months.

The payouts, which all but entirely resolve JPMorgan’s Madoff problems, represent a mixed outcome for the bank. While the big-dollar sums are an embarrassment to a bank that once wielded greater influence in Washington, the settlements also allow JPMorgan to put the cases behind it. As JPMorgan continues to report robust profits, the cases are a distraction that the bank is aiming to resolve in rapid succession.

Yet the comptroller’s office also noted on Tuesday that its investigation remained open. In a statement, it declared: “We will continue our oversight efforts and take further action as warranted.”

And critics of Wall Street are unsatisfied, noting that Mr. Bharara’s office opted to defer prosecution and did not charge any JPMorgan employees with wrongdoing.

Preet Bharara, the United States attorney for the Southern District of New York.

Chester Higgins Jr./The New York Times

Preet Bharara, the United States attorney for the Southern District of New York.

“Banks do not commit crimes; bankers do,” said Dennis M. Kelleher, the head of Better Markets, an advocacy group.

In taking aim at JPMorgan, prosecutors reached back two decades to show how the bank ignored warning signs about Mr. Madoff. When one arm of the bank considered a business deal with Mr. Madoff’s firm in 1998, an employee remarked that the financier’s returns were “possibly too good to be true,” and that there were “too many red flags” to proceed. While those concerns were enough the scuttle the deal, they were never shared with compliance officers or regulators.

“The bank connected the dots when it mattered to its own profit, but was not so diligent otherwise when it came to its legal obligations,” Mr. Bharara said at the news conference.

Another bank, identified in the statement of facts only as “Madoff Bank 2,” did cut off ties to Mr. Madoff in 1996 and brought its concerns to authorities. Although the bank, which people briefed on the matter identified as Bankers Trust, now owned by Deutsche Bank, told prosecutors that JPMorgan “was notified” of the concerns, JPMorgan continued to work closely with Mr. Madoff.

After that, JPMorgan’s ties to Mr. Madoff expanded, even as skepticism mounted. In 2007, when JPMorgan was pursuing derivatives deals linked to Mr. Madoff’s so-called feeder-fund investors, the hedge funds that invested their clients’ money with him, one executive remarked that he had heard about a “well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

JPMorgan’s private bank also issued internal warnings about Mr. Madoff when considering an investment on behalf of its clients. The unit, prosecutors say, balked when Mr. Madoff refused to meet as part of the bank’s due diligence efforts.

On two occasions, in 2007 and 2008, JPMorgan’s own computer system also raised red flags about Mr. Madoff, according to prosecutors. But both times, JPMorgan employees “closed the alerts.”

It was not until October 2008 that JPMorgan alerted authorities — in Britain — to concerns that his firm’s investment returns were “so consistently and significantly ahead of its peers” that the results “appear too good to be true.” But JPMorgan never provided a similar warning to authorities in Washington, a violation of the Bank Secrecy Act.

On the day of Mr. Madoff’s arrest in December 2008, a JPMorgan employee wrote to a colleague: “Can’t say I’m surprised, can you?” The colleague replied: “No.”

Updated, 9:37 p.m. | Two men who occupy coveted roles in Manhattan’s power elite, one the city’s top federal prosecutor and the other its top banker, sat down in early November to discuss a case that was weighing on them both.

Preet Bharara, the United States attorney in Manhattan, and Jamie Dimon, the chief executive of JPMorgan Chase, gathered in Lower Manhattan as Mr. Bharara’s prosecutors were considering criminal charges against Mr. Dimon’s bank for turning a blind eye to the Ponzi scheme run by Bernard L. Madoff. Mr. Dimon and his lawyers outlined the bank’s defense in the hopes of securing a lesser civil case, according to people briefed on the meeting.

But at the cordial meeting in Mr. Bharara’s windowless conference room lined with law books, the prosecutors would not budge. Mr. Bharara — flanked by his own lieutenants, including Richard B. Zabel and Lorin L. Reisner — made it clear that he thought the wrongdoing was significant enough to warrant a criminal case.

On Tuesday, Mr. Bharara announced the culmination of that case, imposing a $1.7 billion penalty stemming from two felony violations of the Bank Secrecy Act, a federal law that requires banks to alert authorities to suspicious activity. The prosecutors, calling the amount a record for violating that 1970 federal law, will direct the money to Mr. Madoff’s victims.

The outcome of the case and the tenor of the settlement talks underscore the significant leverage prosecutors wield when negotiating with Wall Street’s biggest firms. Even though JPMorgan had defeated a similar private lawsuit just months earlier, bank executives were unwilling to gamble against the government.

Within weeks of meeting Mr. Bharara and recognizing their limited bargaining power, JPMorgan’s lawyers accepted the $1.7 billion penalty, the people briefed on the meeting said, which was within the range that prosecutors initially proposed. The bank also agreed to pay $350 million to the Office of the Comptroller of the Currency, accepting the agency’s only offer, one of the people said.

It could have been worse for the bank. At one point, prosecutors were weighing whether to demand that the bank plead guilty to a criminal charge, a move that senior executives feared could have devastating ripple effects. Rather than extracting a guilty plea, prosecutors struck a so-called deferred-prosecution agreement, suspending an indictment for two years as long as JPMorgan overhauls its controls against money-laundering.

Still, the size of the fine and the rarity of a deferred-prosecution agreement — such deals are scarcely used against giant American banks and are typically employed only when misconduct is extreme — reflect the magnitude of the accusations.

Having served as Mr. Madoff’s primary bank for more than two decades, JPMorgan had a unique window into his scheme. In a document outlining the bank’s wrongdoing, prosecutors argued that “the Madoff Ponzi scheme was conducted almost exclusively” through various accounts held at JPMorgan.

At a news conference on Tuesday, Mr. Bharara drew a direct line between Mr. Madoff’s fraud and JPMorgan’s failings, citing the bank for “repeatedly” ignoring warning signs.

“In part because of that failure, for decades Bernie Madoff was able to launder billions of dollars in Ponzi proceeds,” Mr. Bharara said.

George Venizelos, a senior F.B.I. official, added that “JPMorgan failed to carry out its legal obligations while Bernard Madoff built his massive house of cards.”

In a statement on Tuesday, a JPMorgan spokesman noted that the bank had poured significant resources into bolstering its controls, but acknowledged that it “could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.”

The spokesman, Joseph Evangelisti, also defended the bank’s employees, saying, “We do not believe that any JPMorgan Chase employee knowingly assisted Madoff’s Ponzi scheme.” He added that “Madoff’s scheme was an unprecedented and widespread fraud that deceived thousands, including us, and caused many people to suffer substantial losses.”

The charges against JPMorgan, the result of an F.B.I. investigation that spanned several years, are emblematic of a broader problem among giant global banks: ignoring the warning signs of fraud. The case comes a year after HSBC, the large British bank, paid a $1.9 billion fine for enabling Mexican drug cartels to launder cash through its branches.

The case punctuated a sweeping investigation into the movement of tainted money through the American financial system, a crackdown that ensnared other large British banks like Standard Chartered and Barclays. Each of the banks received a deferred-prosecution agreement.

For JPMorgan, the Madoff case is the bank’s latest steep payout to the government. In November, JPMorgan paid a record $13 billion to the Justice Department and other authorities over its sale of questionable mortgage securities in the lead-up to the financial crisis. All told, after paying these settlements, JPMorgan will have paid out some $20 billion to resolve government investigations over the last 12 months.

The payouts, which all but entirely resolve JPMorgan’s Madoff problems, represent a mixed outcome for the bank. While the big-dollar sums are an embarrassment to a bank that once wielded greater influence in Washington, the settlements also allow JPMorgan to put the cases behind it. As JPMorgan continues to report robust profits, the cases are a distraction that the bank is aiming to resolve in rapid succession.

Yet the comptroller’s office also noted on Tuesday that its investigation remained open. In a statement, it declared: “We will continue our oversight efforts and take further action as warranted.”

And critics of Wall Street are unsatisfied, noting that Mr. Bharara’s office opted to defer prosecution and did not charge any JPMorgan employees with wrongdoing.

Preet Bharara, the United States attorney for the Southern District of New York.

Chester Higgins Jr./The New York Times

Preet Bharara, the United States attorney for the Southern District of New York.

“Banks do not commit crimes; bankers do,” said Dennis M. Kelleher, the head of Better Markets, an advocacy group.

In taking aim at JPMorgan, prosecutors reached back two decades to show how the bank ignored warning signs about Mr. Madoff. When one arm of the bank considered a business deal with Mr. Madoff’s firm in 1998, an employee remarked that the financier’s returns were “possibly too good to be true,” and that there were “too many red flags” to proceed. While those concerns were enough the scuttle the deal, they were never shared with compliance officers or regulators.

“The bank connected the dots when it mattered to its own profit, but was not so diligent otherwise when it came to its legal obligations,” Mr. Bharara said at the news conference.

Another bank, identified in the statement of facts only as “Madoff Bank 2,” did cut off ties to Mr. Madoff in 1996 and brought its concerns to authorities. Although the bank, which people briefed on the matter identified as Bankers Trust, now owned by Deutsche Bank, told prosecutors that JPMorgan “was notified” of the concerns, JPMorgan continued to work closely with Mr. Madoff.

After that, JPMorgan’s ties to Mr. Madoff expanded, even as skepticism mounted. In 2007, when JPMorgan was pursuing derivatives deals linked to Mr. Madoff’s so-called feeder-fund investors, the hedge funds that invested their clients’ money with him, one executive remarked that he had heard about a “well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

JPMorgan’s private bank also issued internal warnings about Mr. Madoff when considering an investment on behalf of its clients. The unit, prosecutors say, balked when Mr. Madoff refused to meet as part of the bank’s due diligence efforts.

On two occasions, in 2007 and 2008, JPMorgan’s own computer system also raised red flags about Mr. Madoff, according to prosecutors. But both times, JPMorgan employees “closed the alerts.”

It was not until October 2008 that JPMorgan alerted authorities — in Britain — to concerns that his firm’s investment returns were “so consistently and significantly ahead of its peers” that the results “appear too good to be true.” But JPMorgan never provided a similar warning to authorities in Washington, a violation of the Bank Secrecy Act.

On the day of Mr. Madoff’s arrest in December 2008, a JPMorgan employee wrote to a colleague: “Can’t say I’m surprised, can you?” The colleague replied: “No.”

The figures raised the likelihood that the Federal Reserve would wind down its stimulus drive sooner than later. The central bank has said it would start reeling back on its bond-buying — credited with propping up global equity markets — once the economy shows firms signs of recovery.

“Hopes for more robust economic growth in the world’s largest economy should support confidence in a broad sense, while the weaker-yen factor in particular should buoy Japan shares for today,” he told Dow Jones Newswires.

Meanwhile, the Japanese government announced shortly before the opening bell that the nation’s current account — Japan’s broadest measure of trade with the rest of the world — logged a September surplus of 587.3 billion yen ($5.9 billion), marking the eighth straight month of black ink.

Japan has earned hefty returns from decades of investments overseas, making up for a tepid export picture and surging energy import costs.